[FRIEDMAN, BILLINGS, RAMSEY LETTERHEAD]
December 10, 1997
Board of Directors
Attn.: Joseph J. Gasior, Chairman
Douglas Savings Bank
14 N. Dryden Avenue
Arlington Heights, Illinois 60004
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBW') and Douglas Savings Bank ("Douglas
Savings"), concerning our Investment Banking Services in connection with the
Conversion of Douglas Savings from a federally chartered mutual savings bank to
a holding company form of organization (the "Conversion"), and the sale of stock
in Douglas Savings' newly formed holding company (the "Holding Company").
FBR is prepared to assist Douglas Savings in connection with the offering of its
shares of common stock during the Subscription Offering and Community Offering
as such terms are defined in Douglas Savings' Plan of Conversion (together, the
"Offering"). The specific terms (including those related to indemnification) of
the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between FBR and Douglas Savings to be
executed prior to the date the prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
Subscription Offering and Community Offering will be the price established by
Douglas Savings' Board of Directors, based upon an independent appraisal as
approved by the appropriate regulatory authorities, provided such price is
mutually acceptable to FBR and Douglas Savings.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
1. Act as the Financial Advisor to Douglas Savings
2. Create marketing materials and formulate a marketing plan
3. Conduct training for all Directors and Employees concerning the
Conversion
4. Manage Stock Center and staff with FBR personnel
5. Assist Douglas Savings and Attorneys with listing on NASDAQ
6. Assist Douglas Savings with the proxy solicitation
After the Offering, FBR intends to provide:
1. After market support as a Market Maker for Douglas Savings
2. Research coverage of Douglas Savings
3. For a period of twelve months following the completion of the
conversion, FBR will continue to act as Financial Advisor for Douglas
Savings without further remuneration and provide advice upon request.
At the appropriate time, FBR, in conjunction with its counsel, will conduct an
examination of the relevant documents and records of Douglas Savings as FBR
deems necessary and appropriate. Douglas Savings will make all documents,
records and other information deemed necessary by FBR or its counsel available
to them upon request.
For its services in connection with the Offering, FBR will receive the following
compensation and reimbursement from Douglas Savings:
1. A management fee of $20,000 payable as follows: $10,000 upon the
signing of this letter and $10,000 upon receiving OTS approval of the
Conversion Application. Should the Conversion be terminated for any
reason not attributable to the action or inaction of FBR, FBR shall
have earned and be entitled to be paid fees accruing through the stage
at which point the termination occurred.
2. A success fee of $150,000. The management fee of $20,000 will be
credited against the marketing fee.
3. The foregoing fees are to be payable to FBR at closing as defined in
the Agreement to be entered into between FBR and Douglas Savings.
4. FBR shall be reimbursed for reasonable expenses incurred by them,
including legal fees. Legal fees for FBR's outside counsel shall not
exceed $20,000. FBR's other out-of-pocket expenses are not expected to
exceed $10,000. Should FBR's expenses, including legal fees and other
out-of-pocket expenses incurred by FBR, exceed $30,000, Douglas
Savings must approve such expenses above that amount for FBR to be
reimbursed. FBR's reasonable expenses, including both legal fees and
other out-of-pocket expenses, shall be reimbursed as described above
whether or not the Agreement is consummated.
It is further understood that Douglas Savings will pay all other expenses of the
Plan including but not limited to its attorneys' fees, NASD filing fees, filing
and registration fees and fees of either FBR's attorneys or your attorneys
relating to any required state securities law filings, telephone charges, air
freight, supplies, conversion agent charges, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Plan, Douglas Savings
warrants that: (a) Douglas Savings has not privately placed any securities
within the last 18 months; (b) there have been no material dealings within the
last 12 months between Douglas Savings and any NASD member or any person related
to or associated with any such member; (c) none of the officers or directors of
Douglas Savings has any affiliation with any NASD member; (d) Douglas Savings
has not granted FBR a right of first refusal with respect to the underwriting of
any future offering of Douglas Savings stock; and (e) there has been no
intermediary between FBR and Douglas Savings in connection with the public
offering of Douglas Savings shares, and no person is being compensated in any
manner for providing such service.
Douglas Savings agrees to indemnify and hold harmless FBR and its affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees, agents and controlling persons (FBR
and each such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities (or actions, including shareholder
actions, in respect thereof), joint or several, to which such Indemnified Party
may become subject under any applicable federal or state law, or otherwise,
which are reasonably related to or result from the performance by FBR of the
services contemplated by, or the engagement of FBR pursuant to, this letter
agreement and will promptly reimburse any Indemnified Party for all reasonable
expenses (including reasonable counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or defense arising
therefrom, whether or not such Indemnified Party is a party and whether or not
such claim, action or proceeding is initiated or brought by Douglas Savings.
Douglas Savings will not be liable to any Indemnified Party under the foregoing
indemnification and reimbursement provisions, (i) for any settlement by an
Indemnified Party effected without its prior written consent; or (ii) to the
extent that any loss, claim, damage or liability is found by a court to have
resulted primarily from FBR's gross negligence or willful misconduct, (iii) to
the extent any loss, claim or liability is based on a false or misleading
statement by an FBR employee or agent which is not consistent with the Holding
Company's prospectus or (iv) to the extent any loss, claim, damage or liability
is caused by information supplied by FBR in writing expressly for use in SEC
filed documents. FBR shall repay to Douglas Savings any amounts paid by Douglas
Savings for reimbursement of FBR's and any Indemnified Party's expenses in the
event that such expenses were incurred in relation to an act or omission with
respect to which it is finally determined that FBR has acted in gross negligence
or with willful misconduct. Douglas Savings also agrees that no Indemnified
Party shall have any liability (whether direct or indirect, in contract or tort
or otherwise) to Douglas Savings or its security holders or creditors related to
or arising out of the engagement of FBR pursuant to, or the performance by FBR
of the services contemplated by, this letter agreement except to the extent that
any loss, claim, damage or liability is found in a final judgment by a court to
have
resulted primarily from FBR's gross negligence or willful misconduct or willful
failure to perform the terms of this contract.
Promptly after receipt by an Indemnified Party of notice of any intention or
threat to commence an action, suit or proceeding or notice of the commencement
of any action, suit or proceeding, such Indemnified Party will, if a claim in
respect thereof is to be made against Douglas Savings pursuant hereto, promptly
notify Douglas Savings in writing of the same. In case any such action is
brought against any Indemnified Party and such Indemnified Party notifies
Douglas Savings of the commencement thereof, Douglas Savings may elect to assume
the defense thereof, with counsel reasonably satisfactory to such Indemnified
Party, and an Indemnified Party may retain counsel to participate in the defense
of any such action; provided, however, that in no event shall Douglas Savings be
required to pay fees and expenses for more than one firm of attorneys
representing Indemnified Parties.
If the indemnification provided for in this letter agreement is for any reason
held unenforceable by an Indemnified Party, Douglas Savings agrees to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to Douglas Savings, on the one hand, and FBR on the other
hand, of the Transaction as contemplated (whether or not the Transaction is
consummated) or, (ii) if (but only if) the allocation provided for in clause (i)
is for any reason unenforceable, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) but also the relative
fault of Douglas Savings, on the one hand, and FBR, on the other hand, as well
as any other relevant equitable considerations. Each of the parties hereto (on
its own behalf and, to the extent permitted by applicable law, on behalf of its
stockholders) waives all right to trial by jury in any action, proceeding or
counteraction (whether based upon contract, or otherwise) related to or arising
out of our engagement pursuant to, or the performance by us of the services
contemplated by, this Letter Agreement.
Notwithstanding any provision in this letter to the contrary, Douglas Savings
shall not provide indemnification or contribution as contemplated under the
terms of this letter if such indemnification or contribution would cause Douglas
Savings to violate the provisions of Sections 23A and 23B of the Federal Reserve
Act.
This letter is merely a statement of intent and is not a binding legal agreement
except as to the compensation and reimbursement paragraphs numbered 1-4 above
and the indemnity described above. While FBR and Douglas Savings agree in
principle to the contents hereof and the purpose to proceed promptly, and in
good faith, to work out the arrangements with respect to the proposed offering,
any legal obligations between FBR and Douglas Savings shall be only as set forth
in a duly executed Agreement, which Agreement shall include customary
representations and warranties, covenants and indemnification provisions (which
indemnification provisions shall supersede, in part, the indemnity described
above). Such Agreement shall be in the form and content satisfactory to, among
other things, there being in FBR's opinion no material adverse change in the
condition or obligations of Douglas Savings or no market conditions which might
render the sale of the shares by Douglas Savings hereby contemplated
inadvisable.
The validity and interpretation of this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia (excluding the conflicts of laws rules).
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $10,000. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
/s/ James C. Neuhauser
By: James C. Neuhauser
Title: Managing Director
Date: 12/12/97
Agreed and Accepted to this 17th day of December, 1997
Douglas Savings Bank
On behalf of Douglas Savings and on behalf of the Holding Company to be formed
By: /s/ Joseph J. Gasior
Title: Chairman of the Board
Ratified and approved this ___ day of ___, 1997.
On behalf of the Holding Company
By: /s/ Joseph J. Gasior
Title: Chairman of the Board